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Whatever your views on the long-term viability of the Euro as a currency, it presents far less attractive & obvious shorting opportunity for hedging the European volatility than it may appear on the surface.

Let's take a look at what happened to the US dollar during the the credit crisis of 2008:

Macrofugue

For a year, leading into the credit crisis, even as it became more and more obvious that markets & the economy were quickly converging on an acute credit-crisis & financial system failure, the dollar actually declined until forecast turned into reality.

A credit-crunch is also a liquidity crunch. The supply of money contracts faster than the demand for it. There is a rush to liquidate assets to pay short-term obligation.

This conspires to create an environment in which would be very painful to short the Euro during acute phases of a credit crunch.

The Euro's behaviour across different currencies would probably be different than in the past. In the acute scenario, currency strength pecking order is determined by who has the largest deflationary black-hole - probably the JPY, USD & EUR as the woeful beneficiaries, with the high-yielding & commodity currencies of AUD, NZD & CAD losing ground.

Despite the change in attitude with Draghi replacing Trichet at the ECB, they still remain tighter than the Fed.

It's hard to find short-European themes that have favourable trade risk/reward asymmetry left. This isn't surprising - everyone & their brother is trying to play this. You could also end up waking up one morning to massive intervention from the ECB, Fed, BoJ, China or the European core.

We are hedging our US delta risk, and focusing on other opportunities. Now that everyone has tunnel-vision on Europe, they aren't difficult to find - long or short. As Scott Grannis pointed out: if Eurozone and Pac Rim purchases of U.S. goods and services declined by 20%, this would subtract only 1.1% from U.S. GDP. In short, the U.S. economy is not very vulnerable to foreign disturbances. Conversely, the steadily improving fundamentals in the US will have a positive effect on the economies of Europe & Asia.

Finally: at the end of the day, these actors are almost all motivated to move towards European integration & economic stability. There has been, and will be more, brinksmanship, but it's a poker game - not a suicide run.